IBD Editorials

Obama Promises To Fix Inequality After Making It Worse

President Obama delivers his Inaugural address at the ceremonial swearing-in at the U.S. Capitol during the 57th Presidential Inauguration in... View Enlarged Image

A centerpiece of President Obama's second inaugural address was a call for greater economic equality, with the president saying that "our country cannot succeed when a shrinking few do very well and a growing many barely make it."

But that's precisely what's happened over the past four years, as Obama's economic policies left the majority of Americans falling behind while the wealthy few got further ahead.

Evidence of this is everywhere you look.

The official measure of income inequality — called the Gini index — has climbed every year Obama's been in office, while remaining flat during George Bush's eight years in the White House.

The latest Census data show that the average income of the already wealthiest 20% of families went up in 2011, while every other income group suffered losses. In the years Obama has been in office, average incomes among the poorest households fell nearly 8%, back to levels not seen since the mid-1980s.

Meanwhile, real average weekly earnings dropped almost 1% over the past two years.

Median household income is 7% below where it stood when Obama took office. And, according to a report from the National Employment Law Project, most of the high-paying jobs lost in the recession are being replaced by low-paying ones.

"The unbalanced recession and recovery have meant that the long-term rise in inequality in the U.S. continues," that report noted.

The number of people on food stamps is up 46% since Obama first took office and there are 2.7 million more people in poverty than in 2009.

And the only ones doing well in Obama's economy have been the "shrinking few" Obama complains about. Wall Street investors have benefited from a rising stock market — with the Dow now at five-year highs — and corporate chiefs have seen profits climb 58% since June 2009.

Obama might try to blame the recession for these disparate results. Except that household incomes, to cite just one statistic, fell more during Obama's recovery than during the recession itself.

Others say it proves that "trickle down economics" doesn't work and shows the need for a more aggressive government redistribution of wealth.

But why should anyone believe that higher taxes and more government benefit programs will reduce inequality, when they've failed to do so in the past?

The share of taxes paid by the richest 1% has climbed faster than their share of total income over the past 30 years — to the point where they now account for 19% of income but pay almost 40% of federal income taxes. Yet the official income gap widened.

Worse, the very government programs Obama claims will help reduce inequality haven't worked. In fact, according to the Congressional Budget Office, over the past three decades entitlement programs have "tended to shift more transfer income to middle- and upper-income households."

The CBO found that the overall share of transfer payments going to the poor dropped from 54% in 1979 to 36% by 2007. And IBD reported how the richest 1% get $10 billion a year from federal spending programs.

Plus, the fact that the three richest counties in the country all surround Washington, D.C. — and boast incomes twice the national median — is evidence that big government helps those inside the Beltway far more than those out in the country.

The only real answer to income inequality is the very thing Obama failed to mention once in his inaugural speech — a growing, thriving private economy that spreads opportunity and prosperity faster and farther than any federal program could ever hope to.

During the Reagan boom, for example, average incomes among the bottom 20% of households climbed 14%, while those in the middle climbed 13%.

Obama's belief that only more government can reduce inequality means the problem will likely get worse, if his policies produce continued slow growth that depresses wages and creates an ever-widening gulf between rich and poor.